Few people ever welcome the idea of taking a dispute to court. A formal hearing can be very expensive and time-consuming, and one side may find themselves completely devastated by a judge or jury's ruling. For this reason, many legal disputes are now being resolved through two methods-- mediation or arbitration. Although mediation and arbitration efforts have the same goal in mind, a fair resolution of the issues at hand, there are some major differences which both parties must understand beforehand.

Mediation of a dispute involves using a neutral third party to act as a guide or negotiator. This person may or may not be a legal professional, although a number of legal firms do offer mediation services as an alternative to court. A trained mediator agrees to hear both sides of a dispute objectively, but the main focus remains on the two parties as they work towards a mutually beneficial solution. During mediation, the mediator often meets with each side privately, then schedules face-to-face meetings.

Arbitration, on the other hand, is generally more formal than mediation. An arbitrator could be a retired or active judge, or a very experienced attorney. During arbitration, both parties are given an opportunity to explain their positions in front of the arbitrator. Much like a regular court proceeding, attorneys can also question witnesses from both sides. During arbitration, there is usually little if any out-of-court negotiations between parties. The arbitrator has the power to render a legally binding decision which both parties must honor.

During mediation proceedings, the mediator can render opinions on the best course of action, but ultimately both sides must sign off on a settlement agreement between themselves. The mediator's suggestions and decisions may be based on legal principles, but his opinions are not considered legally binding. In some types of mediations, namely traditional mediation, the mediator will not even offer an opinion. Mediation often works best in civil disputes, such as landlord/tenant matters or divorce proceedings. Arbitration is usually reserved for more complicated legal disputes, such as labor/management contract negotiations and product liability issues.